CASHING OUT AUTOMATICALLY : BANKS, THRIFTS DISCOVER NEW WAY TO CUT COSTS, INCREASE OWN REVENUES.

Byline: Dawn Yoshitake Daily News Staff Writer

Banks and savings-and-loan associations are increasingly tapping into a new trough of funds by offering debit cards with Visa and MasterCard logos.

Debit cards that pull funds from automated teller machines or pay for items from merchants with machines to process the cards have been around for the past two decades.

And for the last six years, the Visa and MasterCard organizations have teamed up with banks to offer debit cards that can be used at any restaurant, hotel or store that accepts ordinary credit cards.

But now the popularity of these debit cards among banks is exploding.

Visa reported a 91.6 percent increase, compared with the previous year, in the number of banks, thrifts and other institutions that issue the cards. There were 2,700 issuers last year.

MasterCard officials said the number of institutions issuing the company's MasterMoney debit cards also has increased, but percentages were not immediately available. They said 971 institutions issued the MasterMoney cards last year.

For example, Bank of America introduced its Versatel (Visa) Checkcard in December. Glendale Federal Bank introduced its MasterMoney card last year.

Home Savings of America rolled out its MasterMoney card this month.

So why all this attention to the cards - and what's to gain?

It's a combination of marketing and a search for profits.

Last fall, Visa launched an $8 million nationwide campaign, ``The New Shape of Checking.''

The massive advertising and education project was designed to tell consumers how they could use enhanced debit cards to pay for purchases by signing a credit card-type receipt and having the funds automatically drawn from their checking accounts.

``And as consumers became aware of it, the banks took notice,'' said Susan Forman, spokeswoman for Visa International in San Francisco.

Before the advertising campaign, banks were reluctant to offer a product consumers might not understand.

``A product evolves over time - and with consumer understanding,'' said Kathy Wohlford, who heads the personal financial services product development department for Irwindale-based Home Savings. ``Consumers now have more of an acceptance (of) debit cards.''

Meanwhile, the credit card companies also are conducting marketing promotions and are helping institutions develop ideas to increase the use of ATM debit cards.

The profit factor for the banks comes from receiving a small percentage of the sales generated by consumers using the cards.

``Some banks make millions of dollars from these cards,'' said Rich Mitchell, editor of Debit Card News, a Chicago-based publication.

Although the banks get a higher premium from credit cards, issuing debit cards still makes financial sense.

Visa's Forman noted that debit cards often are used when consumers would have written a check or paid cash. So the banks get a percentage of the purchase price when they otherwise would have gained nothing.

ATM cards with the credit-card logos not only generate revenues for the banks, but also cut costs, Wohlford said.

``These transactions will save money because it replaces processing checks,'' she said. ``And the more widespread it becomes, the more it will reduce paper checks coming in.''

And for banks and thrifts with a smaller network of ATM sites throughout the state, the cards can provide an edge against the competition.

``If we do this program properly, customers will have less reliance on ATM machines,'' Wohlford said.

Robert Trujillo, who heads Glendale Federal's retail branches and marketing department, said the debit cards provide another choice for consumers.

And institutions and credit card companies say these ATM cards will not diminish the lucrative credit-card business.

``These debit cards aren't competing against credit cards. They're competing with cash and check payments,'' said Chris Rieck, a MasterCard spokesman in New York. ``From a customer's point of view, they're dealing with funds in an account, rather than funds they can charge. That's a different mind-set.''

CAPTION(S):

2 Charts, Drawing

Chart: (1) U.S. DEBIT CARD GROWTH

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(2 ) DEBIT CARD VS. CREDIT CARD GROWTH

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Drawing: (Color) No caption (Piggy bank and credit card)